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TMI Blog2018 (10) TMI 1020X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act. 3. That on the facts and in the circumstances of the case and in law, the learned A.O. erred in disallowing expenses of Rs. 1,91,56,000/- on account of payment of HUDCO loans. 4. That on the facts and in the circumstnaces of the case and in law, the learned A.O. erred in disallowing expenses of Rs. 60,00,000/- on account of provision interest of SRF funds provided by the Government of MP. 5. That on the facts and in the circumstances of the case and in law, the learned A.O. erred in disallowing bad debt written off amounting Rs. 30,76,000/- as non-recoverable from the contractors. 6. That on the facts and in the circumstances of the case and in law, the learned A.O. erred in disallowing provision for Police Welfare & community Halls amounting to Rs. 4,00,00,000/- as required in accordance with main object of the appellant. 7. That on the facts and in the circumstances of the case and in law, the learned A.O. erred in disallowing provision of cost over run expenditure Rs. 1,77,70,000/- as and above of Technical sanction made by the Government. 8. That on the facts and in the circumstnaces of the case and in law, learned A.O. erred in disallowing contingency ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on had to pay this. It was contended that the Government of M.P. directed the Corporation to pay the same. Ld. Counsel for the assessee submitted that by this direction of the Government, the assessee Corporation suffered loss as the liability, which was required to be discharged by the Government fastened upon the assessee Corporation. Ld. Counsel submitted that under these facts, the A.O. ought to have allowed the expenses. Ld. Counsel for the assessee submitted that even if it is assumed that it was the liability of the assessee and in that event, the expenditure related to this year deserves to be allowed. He submitted that for this purpose, the matter can be remitted to the A.O. Ld. Counsel for the assessee has taken us through the correspondence between the Government of India and the State Government. Ld. Counsel submitted that the provision was for payment of the loan amount. 7. On the contrary, Ld. D.R. opposed the submissions and supported the order of the Ld. CIT(A). 8. We have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below. The first submission of the assessee is that loan was payable by Gove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thus, it is an application of income and not a deductible expenditure. Further, it is pertinent to note that the amount was paid in subsequent assessment year on 29.09.2008 and there was no question of any allowance of deduction in the year under consideration. The payment was also for the loan and, thus, not in revenue account. Accordingly, the AO was justified in making disallowance of provision of HUDCO loan of Rs. 1 ,91 ,56,000/*. Hence, the addition of Rs.l ,91,56,000/- is confirmed." 9. However, during the course of hearing, it is stated that assessee had made payment of interest in subsequent years. This fact is not controverted by the revenue. We therefore, set aside the order of Ld. CIT(A) and restore the issue to A.O. for verification of payment of interest. The A.O. would also to compute the interest related to the financial year under appeal. The A.O. would allow the interest paid by the assessee on the loan amount related to the year under appeal. 10. Ground No.4 is against addition on account of disallowance of expenses of Rs. 60 lakhs in respect of provision for interest on SRF funds provided by the Government of M.P. Ld. Counsel for the assessee reiterated the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corporation on voluntary retirement of its employees as per VRS Scheme of the Government of M.P. Thus, there was no liability of interest per se on the amounts released by the State Government from SRF. Further, the appellant had never made a provision of interest since F.Y. 2000-01 when the fund was received. The appellant had not furnished any evidence that interest was to charged on the amount of Rs. 1,55,00,000/- utilised by the corporation as per VRS scheme of the Government. The letter stated to be written by the State Government in 2004 is not produced. Even if, it is considered that the letter was received from the government in 2004, the appellant had not made any such provision of interest in earlier years. There is no scientific basis for making a reasonable provision of interest of on the fund from SRF of Rs. 1,55,00,000/-. The appellant had made a provision of interest of Rs. 60,00,000/- which works out to around 38.71 %. Thus, it cannot be said to be liability accrued for one year. The appellant also not furnished any evidence for payment of such interest to the State Government on SRF fund. Therefore, the AO was justified in disallowing the provision of Rs. 60,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction. The explanation reads as under: "Explanation - For the purposes of his clause, any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assessee." In view of the above, in my opinion, the A.O. was justified in disallowing the provision of bad debts of Rs. 30,76,000/-. Hence, the disallowance of Rs. 30,76,000/- on account of provision for bad debts is confirmed." 17. After considering the totality of the facts, we set aside the order of Ld. CIT(A) and restore the issue to the A.O. to verify whether the assessee had actually written off the bad debts and decide the issue afresh. 18. Ground No.6 is against confirming the addition of Rs. 4 crores in respect of provision for Police Welfare Community Hall. Ld. Senior Counsel for the assessee reiterated the submissions as made before the Ld. CIT(A). It is contended that the assessee Corporation had made a contract with the Government of M.P. to incur expenditure in respect of police welfare schemes for the benefit of police personnel on behalf of the Government of M.P. The Board of Directors of the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... police community halls is confirmed." 21. We find that the Ld. CIT(A) has given finding on fact that the decision relate to earlier year. However, we are of the view that the earlier decision taken in earlier year and the work executed in another year would be sufficient to allow expenditure in the year when it was actually incurred. We therefore restore this issue to the assessing officer to verify whether any expenditure was incurred in the nature of revenue expenditure and decide accordingly. 22. Ground No.7 is against confirming the provision of cost or run expenditure amounting to Rs. 1,77,70,000/-. Ld. counsel for the assessee reiterated the submissions as made before the Ld. CIT(A). It was stated that Corporation is an agency of the Government of M.P. executing the work on behalf of the Central & State Governments. The Government is sole financier of the fund to the appellant corporation for the purpose of construction of houses and police stations within the state under various schemes. It is contended that as per normal practice, the Government gives technical sanctions qualifying the amount of expenditure in respect of such schemes. On the basis of such technical appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I,77,70,0001- is confirmed." 25. We find that the Ld. CIT(A) disallowed this provision on the ground that it does not relate to the year under appeal. Considering the totality of the facts, we deem it proper and restore this issue to the file of the A.O. to verify whether any expenditure related to this year was incurred in the nature of escalation of cost and decide accordingly. 26. Ground No.8 is against confirming the disallowance of contingency expenses of Rs. 16,99,888/-. Ld. Senior Counsel for the assessee reiterated the submissions as made before the Ld. CIT(A). Ld. Counsel for the assessee submitted that the assessee Corporation as per the instruction of Government of M.P. incurred certain expenses in relation to the construction of various schemes. During the year under appeal, the Government of M.P. constructed the assessee corporation to bear the expenses related to contingency charges. It was stated that the expenses were actually incurred by the appellant corporation for the purpose of execution of work and schemes and thus allowable expenditure 27. Ld. D.R. opposed these submissions and supported the order of the Ld. CIT(A). 28. We have heard the rival submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, this fact is required to be verified whether such expenditure made for the execution of work? We therefore, restore this issue to the file of the A.O. to decide it afresh. 30. Ground No.9 is general in nature and needs no separate adjudication. 31. In the result, appeal of the assessee is partly allowed for statistical purposes. ITA 269/Ind/2016 (A.Y. 2008-09): 32. This cross appeal by the revenue is raised a solitary ground, which reads as under: "Deleting the addition of Rs. 50,01,000/- made by A.O. on account of provision of Gratuity Fund? Facts related to this appeal are that case of the assessee was reopened by the revenue and an order u/s 143(3) r.w.s. 147 of the Act was framed on 31.3.2016. While framing the assessment, the A.O. made addition on account of disallowance of provision for gratuity of Rs. 50,01,000/-. 33. Aggrieved against this, the assessee preferred an appeal before the Ld. CIT(A), who after considering the submissions allowed the claim of the assessee. 34. Ld. D.R. supported the order of the A.O. 35. On the contrary, Ld. Counsel for the assessee supported the order of the Ld. CIT(A) and submitted that the issue is covered in favour of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.2008 before the due date of filing of return. Therefore, as per the provisions of section 43B, this deduction is not disallowable and, therefore, this ground of appeal is allowed." 36. From the above order, it is clear that Ld. CIT(A) has given finding on facts that the amount was paid to LIC on account of gratuity on 29.9.2008 before the due date of filing of the return. This fact is not controverted by the revenue, therefore, we do not see any reason to interfere with the finding of the Ld. CIT(A) and the same hereby affirmed and the appeal is dismissed. ITA 259/Ind/2015 (A.Y. 2010-11): 37. These appeals by the assessee are filed after delay of 6 days. An application seeking condonation is filed. An affidavit by Shri P.K. Tripathi, Financial Advisor & Chief Accounts Officer is placed on record. Keeping in view of the submission made in the affidavit, delay of 6 days is condoned. Appeals are taken up for hearing. The assessee has raised following grounds of appeal in ITA No.259/Ind/2015: 1. That on the facts and in the circumstances of the case and in law, the findings of learned CIT(A) are bad and opposed to facts, equity and law and are, therefore, unsustainable in law. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Government, the appellant corporation manages funds in various banks as short term deposits or saving /current account. It was the repeated objection of the C&AG (Revenue Audit), that the corporation is increasing its by taking interest income in the Profit & Loss Account. Therefore, considering the audit objections of C&A G, the Government of India (Ministry of Home Affairs) vides its order No. Vl-21011/11/2009-PM-1 dated 23.03.2010, it was directed that the Corporation should keep MPF fund in short term deposit or Current Account/Saving Accounts and interest accrued if any should be used for the furtherance of the objective of the Scheme. The State Government vides its order no. F-3-29/08/B-3/2 dated 30.8.2010 has directed the appellant corporation that the Interest Income should not be shown as the profit of the corporation; however it should be booked as "Interest Accrued Under the Scheme Funds" either State Fund or Central Government Funds. Being a Government Organisation the appellant Corporation is bound to follow the instructions of Government and made their accounting policies changed in accordance with the instruction or orders The copy of order is being submitted in o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isen from that source shall be treated as income of Government. Where by an obligation income is diverted before it reaches the assessee, it is not taxable, but where the income is required 10 be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. The second payment is merely an obligation to pay another portion of one's income, which has been received and is since applied. The first is the case in which the income never reaches the assessee, who even if he were to collect it, does so, not as part of his income, but for and on behalf of the person to whom it is payable-CIT v. Sitaldas (1961) 41 ITR 367 (SC) In our opinion, the true test is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Obligations, no doubt, there are ill every case, but it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation, cannot be said to be a part of the income of the assessee. Where by the obligation income is diverted before it reac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Govt., any accrual to the funds places on the Deposits of the Corporation is to be treated as additions to the funds /deposits by the Govt., and is to be appropriated as per the Instructions of the Government. The Interest earned if any is not to be treated as profit of the Corporation. The interest on the funds has thus been clubbed accordingly. " Therefore, interest incomes of the funds or deposits provided by the Government are capitalized with the Government funds and hence it is a capital received. There is a clear understanding between Corporation as Contractor and Government that the Interest accrued on PFMS Funds should not be utilized by the Corporation and hence it would not form part of profit. Therefore paying the tax on notional profit is grossly unjustified and against the principle of tax laws. 4. The corporation has accounted for an interest amounting Rs. 14, 62, 93,361/during the year under consideration, which has been shown in the audited books of accounts as "Interest Accrued on Fund for work" under liability side of the Balance Sheet of the Corporation. The assessee is maintaining its books of accounts on accrued basis. The accrued interest on F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that "the taxing authority are having quasi-judiciol powers and in doing so they must act in afair and nor a partisan manner. " In the case of "Indo re Malva United Mills Ltd. Vs State of MP" (1966) 60 ITR 41 (SC), Honorable SC was opined that "Where assessee has produced all his records, it is not open to the AO to pick and choose those which ore more favorable to the revenue, without considering the explanations of the assessee with regards to discrepancies in others". Also in case of Principle of natural justice Honorable Court was held that "the principles of natural justice are applicable to assessment proceedings and the assessee should hove knowledge of material that is proposed to be used against him, in order to enable him to rebut it. Thus where 40 make additions toward income from undisclosed source, without furnishing assessee copies of the statements of the witnesses or even without giving the name of witnesses and without permitting the assessee to inspect the records, it was held that the assumption was vitiated, since it violated the principle of natural justice" Gargi Din Jwala Prasad YS CIT (1974) 96ITR 97(All.) In support of this finding, the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical facts, the Hon'ble Gujarat High Court has accepted the principle of over riding title in the case of Gujarat Power Corporation Ltd. Vs. ITO (2012) 25 Taxmann.com 14 (Guj.). Ld. Counsel for the assessee further placed reliance on the judgement of the Hon'ble Supreme Court in the case of CIT Vs. Sitaldas Tirathdas (1961) 41 ITR 367. The reliance is also placed on the decision of the Hon'ble Gujarat High Court rendered in the case of Gujarat Municipal Finance Board Vs. DCIT 221 ITR 317. Ld. Counsel for the assessee further placed reliance on the judgement of the Hon'ble Gujarat High Court in the case of CIT Vs. SAR Infracon Private Ltd. (2014) 42 Taxmann.com 405 (Gujarat) 42. We have heard the rival contentions, perused the materials available on record and gone through the orders of the authorities below. The contention of the assessee is that interest earned on fixed deposits cannot be taxed as the same is the income of Government of Madhya Pradesh. As per the letter dated 23.3.2010, interest accrued on the grant-in-aid shall be used for the furtherance of the objectives which would be approved by the State level empowered committee. Ld. Counsel for the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not commence the work for which it was incorporated. In the meantime, the amount received as contribution towards share capital was deposited in schedule banks in short term deposits. From such short term deposits, the assessee company earned the interest of Rs. 53.92 crores during the year 1991-92. 5. The assessee company contended that since such amount of interest was received from the contributions by the Government towards share capital which remained in the corporation in trust, the income did not belong to the assessee. 6. The Assessing Officer, however, objected to such treatment of the interest by the assessee company and called upon the assessee to justify the same. Before the Assessing Officer, the assessee contended that the funds provided by the Government to the corporation who for the purpose of allotment of the shares. Since the shares could not be allotted, the surplus funds were parked in fixed deposits with schedule banks. Interest of Rs. 53.92 lakhs received on such fixed deposits belonged to the Government and the same has, accordingly, been credited to the Government of Gujarat. The assessee referred to a letter dated 17.9.1992 received from the Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and written submissions are identical as were in ITA No.259/Ind/2015 which were reproduced above. 47. Per contra, Ld. D.R. opposed the submissions and supported the order of the Ld. CIT(A). 48. We have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below. The facts are identical as were in ITA No.259/Ind/2015. For the same reason this appeal is disposed of accordingly. ITA No.449/Ind/2016 (A.Y. 2012-13): 49. This appeal by the assessee is filed after delay of 43 days. An application seeking condonation is filed. An affidavit by Shri P.K. Tripathi, Financial Advisor & Chief Accounts Officer is placed on record. Keeping in view of the submission made in the affidavit, delay of 43 days is condoned. Appeal is taken up for hearing. The assessee has raised following grounds of appeal: 1. That on the facts and in the circumstances of the case and in law, the findings of learned CIT(A) are bad and opposed to facts, equity and law and are, therefore, unsustainable in law. 2. That on the facts and in the circumstances of the case and in law, the learned A.O. erred in making a scrutiny assessment u/s 143(3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of undisclosed interest income. 4. That on the facts and in the circumstances of the case and in law, the learned A.O. erred in making addition merely on the entries shown in the form 26AS. 5. That on the facts and in the circumstances of the case and in law, the learned A.O. erred in making addition of Rs. 1,15,460/- on account of prior period items debited in the Profit & Loss account. 6. That on the facts and in the circumstances of the case and in law, the learned A.O. erred in making addition of Rs. 86,26,906/- on account of construction of Community centre. 7. Any other ground that may be deemed necessary at the time of hearing as the assessee craves its right to add, amend, or alter any of the grounds of appeal on or before the actual hearing of the case. 56. Ground No.1 & 2 are not pressed. Ground Nos.3 & 4 are identical as were adjudicated in ITA No.259/Ind/2015, hence the same findings may be adopted for these grounds. Ground No.5 is same as in ITA No.449/Ind/2016 and the same findings may be adopted for this ground also. Ground No.7 is general in nature. 57. Apropos to Ground No.6, Ld. Counsel for the assessee reiterated the submissions as made befor ..... 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